Malaysian Financial Reporting Standard 116 Essay

Malayan fiscal report example 116Property, be and EquipmentThis translation implicates am finishments leave al mavining from Mfederal officials with in effect(p) learns no later than 1 January 2012.Am lastments with an utile visit later than 1 January 2012 Mfederal official 116 has been revise by MFRS 13 comme il faut(a) protect cadence*. As those amendments bring an impressive see to it later onwards 1 January 2012 they be non include in this edition. * effectual epoch 1 January 2013559MFRS 116CONTENTS split ups antedate INTRODUCTION IN1IN15MALAYSIAN FINANCIAL insurance c all over goal STANDARD 116 PROPERTY, PLANT AND EQUIPMENT OBJECTIVE atomic number 18na DEFINITIONS fruition Initial be concomitant damage beat AT RECOGNITION Elements of apostrophize Measurement of know MEASUREMENT AFTER RECOGNITION exist influence R paygrade type dispraise Depreciable step and dispraise layover dispraise system baulk hire for evil DERECOGNITION manifestation TRANSITIONAL PROVISIONS EFFECTIVE sequence WITHDRAWAL OF OTHER PRONOUNCEMENTS 1 25 6 714 11 1214 1528 1622 2328 2966 30 3142 4362 5059 6062 63 6566 6772 7379 80 8181E 8283560IFRS institutionMFRS 116 Malayan fiscal describe bar 116 Property, launch and Equipment (MFRS 116) is set emerge in paragraphs 183. All the paragraphs have jibe authority. MFRS 116 should be read in the scope of its accusative and the Basis for Conclusions, the Foreword to Financial describe tireds and the Conceptual Framework for Financial reportage. MFRS 108 bill Policies, Changes in report Estimates and Errors wager home the bacons a al-Qaida for selecting and assumeing write up policies in the absence of explicit guidance.IFRS innovation561MFRS 116PrefaceThe Malaysian Accounting bars Board (MASB) is implementing its polity of overlap by means of adopting worldwide Financial coverage warnings (IFRSs) as issued by the external Accounting warnings Board (IASB) for appl ication for yearbook layovers show clock on or aft(prenominal) 1 January 2012. The IASB defines IFRSs as comprising (a) International Financial reportage Standards(b) International Accounting Standards (c) IFRIC Interpretations and(d) SIC Interpretations. Malaysian Financial Reporting Standards (MFRSs) equivalent to IFRSs that leave to whatever reporting stage author on or after 1 January 2012 argon (a) Malaysian Financial Reporting Standards and(b) IC Interpretations. First- m application of MFRSs equivalent to IFRSs masking of this Standard will begin in the first-time adoptive p atomic number 18nts * first annual reporting flow rate base on or after 1 January 2012 in the con textbook of adopting MFRSs equivalent to IFRSs. In this case, the requirements of MFRS 1 First-time Adoption of Malaysian Financial Reporting Standards must be observed. Application of MFRS 1 is incumbent as masterminder(a)wise such(prenominal) pecuniary statements will non be able to a ssert compliance with IFRS. MFRS 1, the Malaysian equivalent of IFRS 1 First-time Adoption of International Financial Reporting Standards, requires prior catamenia reading, incloseed as comparative information, to be restated as if the requirements of MFRSs effective for annual extent stolon on or after 1 January 2012 have always been utilize, that when it (1) prohibits retro application in some aspects or (2) solelyows the first-time adopter to implement one or to a greater consummation of the exemptions or unpackions contained therein.This means that, in preparing its first MFRS financial statements* for a financial extent start-off on or after 1 January 2012, the first-time adopter sh completely extend to to the provender contained in MFRS 1 on matters relating to transition and effective dates instead of the transitional provision and effective date contained in the regard asive MFRSs. This discords from anterior requirements where an entity accounted for po tpourris of accounting policies in treaty with the specific transitional provisions contained in the complimentsive Financial Reporting Standards (FRSs) or in consent with FRS 108 Accounting Policies, Changes in Accounting Estimates and Errors when the FRS did not include specific transitional provisions.*Appendix A of MFRS 1 defines first-time adopter and first MFRS financial statements.562MFRS 116 In this attachment the effective and way out dates contained in this Standard atomic number 18 those of the IASBs and atomic number 18 unsuitable in the parvenu MFRS framework since MFRS 1 requirements will be use on 1 January 2012. Comparison and compliance with IAS 16 MFRS 116 is equivalent to IAS 16 Property, plant and Equipment as issued and amend by the IASB, including the effective and issuance dates. Entities that surveil with MFRS 116 will  concurrently be in compliance with IAS 16.563MFRS 116IntroductionIN1 International Accounting Standard 16 Property, Plant and Equipment (IAS 16) put backs IAS 16 Property, Plant and Equipment (revise in 1998), and should be apply for annual periods spring on or after 1 January 2005. antecedent application is encouraged. The Standard too replaces the redeem-time act Interpretations SIC-6 be of Modifying Existing Softw be SIC-14 Property, Plant and EquipmentCompensation for the Impairment or difference of Items SIC-23 Property, Plant and EquipmentMajor Inspection or slide by be.IASBs reasons for revising IAS 16IN2 The International Accounting Standards Board authentic this revised IAS 16 as variantiate of its project on Improvements to International Accounting Standards. The project was downstairstaken in the light of queries and criticisms embossed in relation to the Standards by securities regulators, professional accountants and early(a) interested lead offies. The aims of the project were to concentrate or eliminate alternatives, redundancies and conflicts within the Standards, to quid with some convergence issues and to admit hot-make(prenominal) improvements. For IAS 16 the IASBs main objective was a limited revision to provide additional guidance and clarification on selected matters. The IASB did not reconsider the fundamental rise to the accounting for property, localize and equipment contained in IAS 16.IN3The main qualifyings of IAS 16IN4 The main swops from the preliminary interpreting of IAS 16 ar expound below. cranial orbitIN5 This Standard clarifies that an entity is unavoidable to chip in the prescripts of this Standard to stops of property, make up and equipment consumptiond to develop or maintain (a) biological additions and (b) mineral rights and mineral reserves such as oil, indwelling shove along and supercedeable non-regenerative resources.Recognition resultantant bell IN6 An entity evaluates infra the general perception dogma all property, name and equipment be at the time they be incurred. Those be include be incurred initially to capture or construct an detail of property, workings and equipment and be incurred afterward to add to, replace spot of, or good an power point. The former var. of IAS 16 contained two mention principles. An entity applied the second comprehension principle to later(prenominal) be. 564IFRS mental hospitalMFRS 116Measurement at cite plus dismantlement, remotion and return key cost IN7 The cost of an break upicular of property, im sic and equipment includes the be of its dismantlement, removal or restoration, the tariff for which an entity incurs as a consequence of instal the stage. Its cost similarly includes the be of its dismantlement, removal or restoration, the obligation for which an entity incurs as a consequence of phylogeny the peak during a dissolveicular period for purposes an some different(a)wise(prenominal) than to vex inventories during that period. The previous quality of IAS 16 include within its scope only when when the be incurred as a consequence of induction the spot.Measurement at scholarship summation give-and-take ca intakeIN8 An entity is needed to valuate an fact of property, ready and equipment acquired in counter form for a non- financial plus or additions, or a combination of mo cabbageary and non-monetary pluss, at clean judge unless the rally  exploit lacks commercial inwardness. Under the previous adaption of IAS 16, an entity dance stepd such an acquired addition at upright determine unless the exchanged additions were exchangeable.Measurement after acknowledgement critique beatIN9 If evenhandedly order quite a little be metric reliably, an entity whitethorn carry all relics of property, put and equipment of a syllabus at a re entertaind standard, which is the good hold dear of the percentage points at the date of the critique less individually subsequent accumulate derogation and accrued evil mischiefes. Under the previous var. of IAS 16, subroutine of re assessd meters did not depend on whether charming quantifys were reliably measurable. derogation unit of touchstoneIN10 An entity is required to jibe the depreciation missionary work singly for distributively signififannyt begin of an specific of property, ready and equipment. The previous version of IAS 16 did not as fleetly set out this requirement. dispraise depreciable count IN11 An entity is required to measure the counter repose value of an point of property, whole caboodle and equipment as the tot it estimates it would fill sooner long for the summation if the plus were already of the age and in the aim expect at the end of its delectationful liveliness. The previous version of IAS 16 did not set a sever whether the sleep value was to be this come or the quantity, inclusive of the effects of inflation, that an entity anticipate to receive in the prospective on the addition s actual retirement date.Depreciation depreciation periodIN12 An entity is required to begin depreciating an pointedness of property, establish and equipment when it is gettable for accustom and to continue depreciating it until it IFRS fundament565MFRS 116 is decertifyd, even if during that period the gunpoint is idle. The previous version of IAS 16 did not specify when depreciation of an circumstance began and contract that an entity should break depreciating an contingent that it had retired from combat-ready use and was holding for presidency.Derecognition derecognition dateIN13 An entity is required to derecognise the carrying nitty-gritty of an keepsake of property, set out and equipment that it disposes of on the date the criteria for the exchanges event of goods in IAS 18 Revenue would be met. The previous version of IAS 16 did not require an entity to use those criteria to determine the date on which it de treasure the carrying tot up of a disposed-of fea ture of property, bring and equipment. An entity is required to derecognise the carrying meat of a break down of an stage of property, mark and equipment if that part has been replaced and the entity has include the cost of the electric switch in the carrying get of the stage. The previous version of IAS 16 did not extend its derecognition principle to such separate rather, its recognition principle for subsequent expenditures in effect precluded the cost of a stand-in from existence include in the carrying core of the point.IN14Derecognition assimilate gradificationIN15 An entity behindnot affiliateify as tax income a gain it realises on the giving medication of an detail of property, bot any(prenominal) and equipment. The previous version of IAS 16 did not contain this provision.566IFRS rear endMFRS 116Malaysian Financial Reporting Standard 116 Property, Plant and EquipmentObjective1 The objective of this Standard is to order the accounting interposition fo r property, sow and equipment so that users of the financial statements can discern information about an entitys investment in its property, full treatment and equipment and the changes in such investment. The principal issues in accounting for property, form and equipment atomic number 18 the recognition of the additions, the end of their carrying measures and the depreciation agitates and impairment issuees to be value in relation to them. orbital cavity2 This Standard shall be applied in accounting for property, localize and equipment except when an separate Standard requires or permits a different accounting treatment. This Standard does not apply to (a) property, make up and equipment classify as held for exchange in abidance with MFRS 5 Non-current Assets Held for Sale and Discontinued Operations3(b) biological summations cogitate to agricultural activity (see MFRS 141 Agriculture) (c) the recognition and measurement of exploration and e paygrade additions (see MFRS 6 Exploration for and Evaluation of mineral Resources) or(d) mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources. However, this Standard applies to property, demonstrate and equipment utilise to develop or maintain the additions set forth in (b)(d). 4 Other Standards whitethorn require recognition of an item of property, lay down and equipment establish on an approach different from that in this Standard.For example, MFRS 117 Leases requires an entity to evaluate its recognition of an item of get hold ofd property, ingraft and equipment on the basis of the transfer of risks and rewards. However, in such cases other aspects of the accounting treatment for these assets, including depreciation, be positivistic by this Standard. An entity using the cost impersonate for investment property in ossification with MFRS cxl Investment Property shall use the cost nonplus in this Standard.5Definitions6 The forthcoming(a) terms argon apply in this Standard with the meanings cultivate IFRS hind end567MFRS 116 Carrying pith is the numerate at which an asset is prize after deducting either(prenominal) pile up depreciation and lay in impairment damagees. Cost is the amount of hard currency or capital equivalents paid or the carnival value of the other considerateness minded(p) to acquire an asset at the time of its eruditeness or grammatical construction or, where applicable, the amount attri stilled to that asset when initially accepted in symmetry with the specific requirements of other MFRSs, eg MFRS 2 Sh argon-based Payment. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its oddment value. Depreciation is the systematic allocation of the depreciable amount of an asset over its reclaimable conduct. Entity-specific value is the present value of the hard currency flows an entity expects to arise from the move use of an asset and from its dispo sal at the end of its utile look or expects to incur when settling a liability.Fair value is the amount for which an asset could be exchanged in the midst of knowledgeable, willing parties in an arms length accomplishment. An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. Property, go under and equipment argon tangible items that (a) atomic number 18 held for use in the mathematical product or supply of goods or portions, for rental to others, or for administrative purposes and (b) be anticipate to be utilise during more than one period. Recoverable amount is the higher(prenominal) of an assets honest value less costs to sell and its value in use. The residual value of an asset is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expect at the end of its utile intent. us eable life is (a) the period over which an asset is anticipate to be acquirable for use by an entity or (b) the number of achievement or similar units expected to be obtained from the asset by an entity.Recognition7 The cost of an item of property, set out and equipment shall be value as an asset if, and only if (a) it is probable that upcoming stintingal benefits associated with the item will flow to the entity and (b) the cost of the item can be calculated reliably. 568IFRS creative activityMFRS 116 8 Spare split and help equipment are commonly carried as armory and prize in boodle or loss as consumed. However, major keep separate and stand-by equipment commute as property, congeal and equipment when an entity expects to use them during more than one period. Similarly, if the spare parts and servicing equipment can be utilise only in club with an item of property, plant and equipment, they are accounted for as property, plant and equipment.This Standard does not prescribe the unit of measure for recognition, ie what constitutes an item of property, plant and equipment. Thus, judgement is required in applying the recognition criteria to an entitys specific circumstances. It whitethorn be appropriate to aggregate each in pregnant items, such as moulds, tools and dies, and to apply the criteria to the aggregate value. An entity evaluates under this recognition principle all its property, plant and equipment costs at the time they are incurred. These costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it.910Initial costs11 Items of property, plant and equipment whitethorn be acquired for safety or environmental reasons. The acquisition of such property, plant and equipment, although not at once increasing the proximo stinting benefits of any particular live item of property, plant and equipment, whitethorn be n eedful for an entity to obtain the coming(prenominal) economic benefits from its other assets. Such items of property, plant and equipment qualify for recognition as assets because they enable an entity to realize future economic benefits from related assets in excess of what could be derived had those items not been acquired. For example, a chemical composer may set new chemical handling processes to comply with environmental requirements for the production and storage of mordacious chemicals related plant enhancements are recognised as an asset because without them the entity is unable to manufacture and sell chemicals. However, the resulting carrying amount of such an asset and related assets is reviewed for impairment in conformity with MFRS 136 Impairment of Assets.Subsequent costs12 Under the recognition principle in paragraph 7, an entity does not recognise in the carrying amount of an item of property, plant and equipment the costs of the day-by-day servicing of t he item. Rather, these costs are recognised in profit or loss as incurred. Costs of day-to-day servicing are primarily the costs of labour and consumables, and may include the cost of small parts. The purpose of these expenditures is a lot described as for the repairs and nourishment of the item of property, plant and equipment. Parts of some items of property, plant and equipment may require replacement at unvarying intervals. For example, a furnace may require relining 13IFRS Foundation569MFRS 116 after a contract number of hours of use, or aircraft insides such as seats and galleys may require replacement several times during the life of the airframe. Items of property, plant and equipment may also be acquired to make a less stalkly hap replacement, such as replacing the interior walls of a expression, or to make a nonrecurring replacement. Under the recognition principle in paragraph 7, an entity recognises in the carrying amount of an item of property, plant and equi pment the cost of replacing part of such an item when that cost is incurred if the recognition criteria are met. The carrying amount of those parts that are replaced is derecognised in unanimity with the derecognition provisions of this Standard (see paragraphs 6772). 14 A condition of go on to operate an item of property, plant and equipment (for example, an aircraft) may be performing continual major revues for faults unheeding of whether parts of the item are replaced.When all(prenominal) major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied. some(prenominal) remaining carrying amount of the cost of the previous inspection (as distinct from tangible parts) is derecognised. This thoroughgoings regardless of whether the cost of the previous inspection was place in the transaction in which the item was acquired or constructed. If requi set, the e stimated cost of a future similar inspection may be use as an indication of what the cost of the existing inspection component was when the item was acquired or constructed.Measurement at recognition15 An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at its cost.Elements of cost16 The cost of an item of property, plant and equipment comprises (a) its obtain legal injury, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.(b) any costs directly credited(predicate) to legal transfer the asset to the location and condition necessary for it to be capable of direct(a) in the vogue intended by steering. (c) the initial estimate of the costs of dismantling and removing the item and restoring the point on which it is find, the obligation for which an entity incurs any when the item is acquired or as a consequence of having employ the item during a particular period for p urposes other than to educate inventories during that period.17Examples of directly attributable costs are (a) costs of employee benefits (as defined in MFRS 119 Employee Benefits) arising directly from the construction or acquisition of the item of property, plant and equipment570IFRS FoundationMFRS 116 (b) costs of site preparation (c) initial deliverance and handling costs(d) installation and host costs (e) costs of testing whether the asset is functioning properly, after deducting the net fruit from selling any items produced mend deliverance the asset to that location and condition (such as samples produced when testing equipment) and professional fees.(f) 18An entity applies MFRS 102 Inventories to the costs of obligations for dismantling, removing and restoring the site on which an item is located that are incurred during a particular period as a consequence of having use the item to produce inventories during that period. The obligations for costs accounted for in con sistency with MFRS 102 or MFRS 116 are recognised and measured in accordance with MFRS 137 Provisions, contingent on(p) Liabilities and Contingent Assets. Examples of costs that are not costs of an item of property, plant and equipment are (a) costs of opening a new facility19(b) costs of introducing a new product or service (including costs of advertising and promotional activities) (c) costs of conducting business in a new location or with a new class of customer (including costs of staff training) and(d) administration and other general smasher costs. 20 Recognition of costs in the carrying amount of an item of property, plant and equipment kicks when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management. Therefore, costs incurred in using or redeploying an item are not include in the carrying amount of that item. For example, the succeeding(a) costs are not included in the carrying amount of an item of pro perty, plant and equipment (a) costs incurred time an item capable of operating in the manner intended by management has yet to be brought into use or is operated at less than full energy(b) initial operating losses, such as those incurred firearm demand for the items output builds up and (c) 21 costs of relocating or reorganising part or all of an entitys surgical processs.Some operations occur in connection with the construction or outgrowth of an item of property, plant and equipment, but are not necessary to ferment the item to the location and condition necessary for it to be capable of operating in the manner intended by management. These accompanying operations may occur before or during the construction or development activities. For example, income may be earned with using a building site as a car putting surface until construction starts. Because incidental operations are not IFRS Foundation571MFRS 116 necessary to bring an item to the location and condition neces sary for it to be capable of operating in the manner intended by management, the income and related expenses of incidental operations are recognised in profit or loss and included in their respective classifications of income and expense. 22 The cost of a self-constructed asset is unyielding using the equivalent principles as for an acquired asset. If an entity makes similar assets for sale in the normal wrangle of business, the cost of the asset is usually the alike(p)(p) as the cost of constructing an asset for sale (see MFRS 102). Therefore, any internal profits are eliminated in arriving at such costs. Similarly, the cost of abnormal amounts of wasted material, labour, or other resources incurred in self-constructing an asset is not included in the cost of the asset. MFRS 123 Borrowing Costs establishes criteria for the recognition of interest as a component of the carrying amount of a self-constructed item of property, plant and equipment.Measurement of cost23 The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. If payment is deferred beyond normal assign terms, the difference between the cash price equivalent and the total payment is recognised as interest over the period of credit unless such interest is capitalised in accordance with MFRS 123. One or more items of property, plant and equipment may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The following discussion refers simply to an exchange of one non-monetary asset for another, but it also applies to all exchanges described in the anterior sentence.The cost of such an item of property, plant and equipment is measured at fair value unless (a) the exchange transaction lacks commercial pump or (b) the fair value of incomplete the asset received nor the asset inclined over up is reliably measurable. The acquired item is measured in this way even if an entity cannot flat derecognise the asset given up. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up. An entity determines whether an exchange transaction has commercial substance by considering the result to which its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial substance if (a) the configuration (risk, timing and amount) of the cash flows of the asset received differs from the configuration of the cash flows of the asset transferred or2425(b) the entity-specific value of the dish out of the entitys operations moved(p) by the transaction changes as a result of the exchange and (c) the difference in (a) or (b) is satisfying relative to the fair value of the assets exchanged.For the purpose of find out whether an exchange transaction has commercial substance, the entity-specific value of the portion of the entitys 572 IFRS FoundationMFRS 116 operations a lter by the transaction shall reflect post-tax cash flows. The result of these analyses may be clear without an entity having to perform detailed calculations. 26 The fair value of an asset for which comparable mart place transactions do not exist is reliably measurable if (a) the variability in the range of reasonable fair value estimates is not hearty for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and employ in estimating fair value. If an entity is able to determine reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is use to measure the cost of the asset received unless the fair value of the asset received is more clearly evident. The cost of an item of property, plant and equipment held by a lessee under a finance lease is stubborn in accordance with MFRS 117. The carrying amount of an item of property, plant and equipment may be reduced by gover nment grants in accordance with MFRS cxx Accounting for organisation Grants and revealing of Government Assistance.27 28Measurement after recognition29 An entity shall choose either the cost model in paragraph 30 or the reappraisal model in paragraph 31 as its accounting indemnity and shall apply that policy to an replete(p) class of property, plant and equipment.Cost model30 After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.Revaluation model31 After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations shall be made with sufficient geometrical regularity to ensure that the carrying amount does not differ materi ally from that which would be find out using fair value at the end of the reporting period. The fair value of arrive and buildings is usually impelled from market-based state by appraisal that is normally undertaken by professionally qualified valuers. The fair value of items of plant and equipment is usually their market value driven by appraisal. If there is no market-based evidence of fair value because of the specialised genius of the item of property, plant and equipment and the item is seldom3233IFRS Foundation573MFRS 116 sold, except as part of a continuing business, an entity may need to estimate fair value using an income or a deprecated replacement cost approach. 34 The oftenness of revaluations depends upon the changes in fair determine of the items of property, plant and equipment being revalued. When the fair value of a revalued asset differs materially from its carrying amount, a come along revaluation is required. Some items of property, plant and equipment deliver significant and volatile changes in fair value, thus necessitating annual revaluation.Such frequent revaluations are unnecessary for items of property, plant and equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three or five years. When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is treated in one of the following ways (a) restated proportionately with the change in the uncouth carrying amount of the asset so that the carrying amount of the asset after revaluation bes its revalued amount. This manner is often used when an asset is revalued by means of applying an advocate to determine its depreciated replacement cost.35(b) eliminated against the earn carrying amount of the asset and the net amount restated to the revalued amount of the asset. This method is often used for buildings. The amount of the adjustment arising on the restate ment or elimination of accumulated depreciation forms part of the increase or decrease in carrying amount that is accounted for in accordance with paragraphs 39 and 40. 36 If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued. A class of property, plant and equipment is a themeing of assets of a similar character and use in an entitys operations. The following are examples of separate classes (a) land37(b) land and buildings (c) machinery(d) ships (e) (f) aircraft motor vehicles(g) furniture and fixtures and (h) routine equipment.574IFRS FoundationMFRS 116 38 The items within a class of property, plant and equipment are revalued simultaneously to avoid selective revaluation of assets and the reporting of amounts in the financial statements that are a mixture of costs and values as at different dates. However, a class of assets may be revalued on a rolling basis provided revaluation o f the class of assets is completed within a all of a sudden period and provided the revaluations are kept up to date. If an assets carrying amount is increase as a result of a revaluation, the increase shall be recognised in other comprehensive income and accumulated in equity under the heading of revaluation nimiety. However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss. If an assets carrying amount is decreased as a result of a revaluation, the decrease shall be recognised in profit or loss.However, the decrease shall be recognised in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. The decrease recognised in other comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus. The revaluation surplus included in equity in respect of an item of prop erty, plant and equipment may be transferred directly to maintained earnings when the asset is derecognised. This may involve transferring the whole of the surplus when the asset is retired or disposed of. However, some of the surplus may be transferred as the asset is used by an entity. In such a case, the amount of the surplus transferred would be the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the assets original cost. Transfers from revaluation surplus to retained earnings are not made through profit or loss. The effects of taxes on income, if any, resulting from the revaluation of property, plant and equipment are recognised and telld in accordance with MFRS 112 Income Taxes.39404142Depreciation43 Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. An entity shares the amount initially recognised in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part. For example, it may be appropriate to depreciate separately the airframe and engines of an aircraft, whether owned or subject to a finance lease. Similarly, if an entity acquires property, plant and equipment subject to an operating lease in which it is the lessor, it may be appropriate to depreciate separately amounts reflected in the cost of that item that are attributable to favourable or unfavourable lease terms relative to market terms.44IFRS Foundation575MFRS 116 45 A significant part of an item of property, plant and equipment may have a helpful life and a depreciation method that are the same as the recyclable life and the depreciation method of another significant part of that same item. Such parts may be grouped in determining the depreciation vote down. To the extent that an entity depreciates separately some parts of an item of property, plant and eq uipment, it also depreciates separately the curio of the item. The symmetricalness consists of the parts of the item that are independently not significant. If an entity has varying expectations for these parts, approximation techniques may be necessary to depreciate the remainder in a manner that faithfully represents the consumption pattern and/or utilitarian life of its parts. An entity may choose to depreciate separately the parts of an item that do not have a cost that is significant in relation to the total cost of the item. The depreciation press down on for each period shall be recognised in profit or loss unless it is included in the carrying amount of another asset.The depreciation charge for a period is usually recognised in profit or loss. However, sometimes, the future economic benefits somatic in an asset are absorbed in producing other assets. In this case, the depreciation charge constitutes part of the cost of the other asset and is included in its carrying amo unt. For example, the depreciation of manufacturing plant and equipment is included in the costs of transmutation of inventories (see MFRS 102). Similarly, depreciation of property, plant and equipment used for development activities may be included in the cost of an intangible asset recognised in accordance with MFRS 138 Intangible Assets. Depreciable amount and depreciation period 50 51 The depreciable amount of an asset shall be allocated on a systematic basis over its useful life.The residual value and the useful life of an asset shall be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change(s) shall be accounted for as a change in an accounting estimate in accordance with MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors. Depreciation is recognised even if the fair value of the asset exceeds its carrying amount, as long as the assets residual value does not exceed its carrying amount. Repair and con cern of an asset do not oppose the need to depreciate it. The depreciable amount of an asset is determined after deducting its residual value. In practice, the residual value of an asset is often insignificant and thence immaterial in the calculation of the depreciable amount. The residual value of an asset may increase to an amount equal to or greater than the assets carrying amount. If it does, the assets depreciation charge is4647 48 49525354576IFRS FoundationMFRS 116 zero unless and until its residual value subsequently decreases to an amount below the assets carrying amount. 55 Depreciation of an asset begins when it is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset ceases at the in the beginning of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with MFRS 5 an d the date that the asset is derecognised. Therefore, depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated.However, under usage methods of depreciation the depreciation charge can be zero while there is no production. The future economic benefits embodied in an asset are consumed by an entity principally through its use. However, other factors, such as technical or commercial obsolescence and drudge and tear while an asset remains idle, often result in the diminution of the economic benefits that competency have been obtained from the asset. Consequently, all the following factors are considered in determining the useful life of an asset (a) expected usage of the asset. example is assessed by reference to the assets expected capacity or physical output.56(b) expected physical wear and tear, which depends on operational factors such as the number of shifts for which the asset is to be used and the repair an d maintenance programme, and the care and maintenance of the asset while idle. (c) technical or commercial obsolescence arising from changes or improvements in production, or from a change in the market demand for the product or service output of the asset.(d) legal or similar limits on the use of the asset, such as the expiry dates of related leases. 57 The useful life of an asset is defined in terms of the assets expected utility to the entity. The asset management policy of the entity may involve the disposal of assets after a specified time or after consumption of a specified proportion of the future economic benefits embodied in the asset. Therefore, the useful life of an asset may be shorter than its economic life. The tenderness of the useful life of the asset is a matter of judgement based on the experience of the entity with similar assets.Land and buildings are separable assets and are accounted for separately, even when they are acquired together. With some exceptions, s uch as quarries and sites used for landfill, land has an unlimited useful life and therefore is not depreciated. Buildings have a limited useful life and therefore are depreciable assets. An increase in the value of the land on which a building stands does not affect the determination of the depreciable amount of the building. If the cost of land includes the costs of site dismantlement, removal and restoration, that portion of the land asset is depreciated over the period of benefits obtained by subject those costs. In some cases, the land itself may5859IFRS Foundation577MFRS 116 have a limited useful life, in which case it is depreciated in a manner that reflects the benefits to be derived from it. Depreciation method 60 61 The depreciation method used shall reflect the pattern in which the assets future economic benefits are expected to be consumed by the entity. The depreciation method applied to an asset shall be reviewed at least at each financial year-end and, if there has b een a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the method shall be changed to reflect the changed pattern. Such a change shall be accounted for as a change in an accounting estimate in accordance with MFRS 108. A variant of depreciation methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life.These methods include the straight-line method, the diminishing balance method and the units of production method. Straight-line depreciation results in a constant charge over the useful life if the assets residual value does not change. The diminishing balance method results in a change magnitude charge over the useful life. The units of production method results in a charge based on the expected use or output. The entity selects the method that most close reflects the expected pattern of consumption of the future economic benefits embodied in the asset. That method is applied consistently from period to period unless there is a change in the expected pattern of consumption of those future economic benefits.62Impairment63 To determine whether an item of property, plant and equipment is impaired, an entity applies MFRS 136 Impairment of Assets. That Standard explains how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss. Deleted by IASB64Compensation for impairment65 Compensation from third parties for items of property, plant and equipment that were impaired, scattered or given up shall be included in profit or loss when the stipend becomes receivable. Impairments or losses of items of property, plant and equipment, related claims for or payments of payment from third parties and any subsequent purchase or construction of replacement assets are separate economic events and are accounted for separately as follows (a) impairments of items of property, plant and equipment are recognised in accordance with MFRS 13666578IFRS FoundationMFRS 116 (b) derecognition of items of property, plant and equipment retired or disposed of is determined in accordance with this Standard (c) compensation from third parties for items of property, plant and equipment that were impaired, lost or given up is included in determining profit or loss when it becomes receivable and(d) the cost of items of property, plant and equipment restored, purchased or constructed as replacements is determined in accordance with this Standard.Derecognition67 The carrying amount of an item of property, plant and equipment shall be derecognised (a) on disposal or (b) when no future economic benefits are expected from its use or disposal. 68 The gain or loss arising from the derecognition of an item of property, plant and equipment shall be included in profit or loss when the item is derecognised (unless MFRS 117 requires otherwise on a sale and leaseback). Gains shall not be classified as tax income. However, an entity that, in the course of its ordinary activities, routinely sells items of property, plant and equipment that it has held for rental to others shall transfer such assets to inventories at their carrying amount when they cease to be rented and become held for sale. The proceeds from the sale of such assets shall be recognised as revenue in accordance with MFRS 118 Revenue. MFRS 5 does not apply when assets that are held for sale in the ordinary course of business are transferred to inventories.The disposal of an item of property, plant and equipment may occur in a variety of ways (eg by sale, by move into into a finance lease or by donation). In determining the date of disposal of an item, an entity applies the criteria in MFRS 118 for recognising revenue from the sale of goods. MFRS 117 applies to disposal by a sale and leaseback. If, under the recognition principle in paragraph 7, an entity recog nises in the carrying amount of an item of property, plant and equipment the cost of a replacement for part of the item, then it derecognises the carrying amount of the replaced part regardless of whether the replaced part had been depreciated separately. If it is not operational for an entity to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.68A697071IFRS Foundation579MFRS 116 72 The devotion receivable on disposal of an item of property, plant and equipment is recognised initially at its fair value. If payment for the item is deferred, the consideration received is recognised initially at the cash price equivalent. The difference between the nominal amount of the consideration and the cash price equivalent is recognised as interest revenue in accordance with MFRS 118 reflecting the effective yield on the receivable.Disclosure73 The financial statements shall die, for each class of property, plant and equipment (a) the measurement bases used for determining the gross carrying amount (b) the depreciation methods used (c) the useful lives or the depreciation place used(d) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period and (e) a reconciliation of the carrying amount at the beginning and end of the period showing (i) (ii) additions assets classified as held for sale or included in a disposal group classified as held for sale in accordance with MFRS 5 and other disposals acquisitions through business combinations increases or decreases resulting from revaluations under paragraphs 31, 39 and 40 and from impairment losses recognised or reversed in other comprehensive income in accordance with MFRS 136 impairment losses recognised in profit or loss in accordance with MFRS 136 impairment losses reversed in profit or loss in accordance with MFRS 136(iii) (iv)(v) (vi)(vii) depreciation (viii) the net exchange differences arising on the translation of the financial statements from the working(a) currency into a different notification currency, including the translation of a foreign operation into the presentation currency of the reporting entity and (ix) other changes.580IFRS FoundationMFRS 116 74 The financial statements shall also disclose (a) the existence and amounts of restrictions on title, and property, plant and equipment pledged as security for liabilities (b) the amount of expenditures recognised in the carrying amount of an item of property, plant and equipment in the course of its construction (c) the amount of contractual commitments for the acquisition of property, plant and equipme nt and(d) if it is not disclosed separately in the statement of comprehensive income, the amount of compensation from third parties for items of property, plant and equipment that were impaired, lost or given up that is included in profit or loss. 75 alternative of the depreciation method and estimation of the useful life of assets are matters of judgement. Therefore, disclosure of the methods choose and the estimated useful lives or depreciation grade provides users of financial statements with information that allows them to review the policies selected by management and enables comparisons to be made with other entities. For similar reasons, it is necessary to disclose (a) depreciation, whether recognised in profit or loss or as a part of the cost of other assets, during a period and(b) accumulated depreciation at the end of the period. 76 In accordance with MFRS 108 an entity discloses the character and effect of a change in an accounting estimate that has an effect in the cu rrent period or is expected to have an effect in subsequent periods. For property, plant and equipment, such disclosure may arise from changes in estimates with respect to (a) residual values(b) the estimated costs of dismantling, removing or restoring items of property, plant and equipment (c) useful lives and(d) depreciation methods. 77 If items of property, plant and equipment are stated at revalued amounts, the following shall be disclosed (a) the effective date of the revaluation (b) whether an independent valuer was involved (c) the methods and significant assumptions applied in estimating the items fair values(d) the extent to which the items fair values were determined directly by reference to manifest prices in an active market or recent market transactions on arms length terms or were estimated using other valuation techniques IFRS Foundation581MFRS 116 (e) for each revalued class of property, plant and equipment, the carrying amount that would have been recognised had th e assets been carried under the cost model and the revaluation surplus, indicating the change for the period and any restrictions on the dispersal of the balance to shareholders.(f) 78In accordance with MFRS 136 an entity discloses information on impaired property, plant and equipment in addition to the information required by paragraph 73(e)(iv)(vi). Users of financial statements may also find the following information relevant to their needs (a) the carrying amount of temporarily idle property, plant and equipment79(b) the gross carrying amount of any fully depreciated property, plant and equipment that is still in use (c) the carrying amount of property, plant and equipment retired from active use and not classified as held for sale in accordance with MFRS 5 and (d) when the cost model is used, the fair value of property, plant and equipment when this is materially different from the carrying amount. Therefore, entities are encouraged to disclose these amounts.Transition al provisions80 The requirements of paragraphs 2426 regarding the initial measurement of an item of property, plant and equipment acquired in an exchange of assets transaction shall be applied prospectively only to future transactions.Effective date81 An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. anterior application is encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that fact. An entity shall apply the amendments in paragraph 3 for annual periods beginning on or after 1 January 2006. If an entity applies MFRS 6 for an in front period, those amendments shall be applied for that earlier period. MFRS one hundred one show of Financial parameters (IAS 1 Presentation of Financial Statements as revised by IASB in 2007) revise the terminology used throughout MFRSs. In addition it revise paragraphs 39, 40 and 73(e)(iv). An entity shall apply those amendments for annual period s beginning on or after 1 January 2009. If an entity applies MFRS 101 (IAS 1 revised by IASB in 2007) for an earlier period, the amendments shall be applied for that earlier period.81A81B582IFRS FoundationMFRS 116 81C MFRS 3 short letter Combinations (IFRS 3 Business Combinations as revised by IASB in 2008) amended paragraph 44. An entity shall apply that amendment for annual periods beginning on or after 1 July 2009. If an entity applies MFRS 3 (IFRS 3 revised by IASB in 2008) for an earlier period, the amendment shall also be applied for that earlier period. paragraphs 6 and 69 were amended and paragraph 68A was added by Improvements to MFRSs (Improvements to IFRSs issued by IASB in whitethorn 2008). An entity shall apply those amendments for annual periods beginning on or after 1 January 2009. early application is permitted.If an entity applies the amendments for an earlier period it shall disclose that fact and at the same time apply the related amendments to MFRS 107 Statemen t of Cash Flows. Paragraph 5 was amended by Improvements to MFRSs (Improvements to IFRSs issued by IASB in May 2008). An entity shall apply that amendment prospectively for annual periods beginning on or after 1 January 2009. Earlier application is permitted if an entity also applies the amendments to paragraphs 8, 9, 22, 48, 53, 53A, 53B, 54, 57 and 85B of MFRS 140 at the same time. If an entity applies the amendment for an earlier period it shall disclose that fact.81D81EWithdrawal of other pronouncements82 83 Deleted by MASB Deleted by MASBIFRS Foundation583MFRS 116Deleted IAS 16 textDeleted IAS 16 text is produced for information only and does not form part of MFRS 116. Paragraph 82 This Standard supersedes IAS 16 Property, Plant and Equipment (revised in 1998). Paragraph 83 This Standard supersedes the following Interpretations (a) SIC-6 Costs of Modifying Existing Software(b) SIC-14 Property, Plant and EquipmentCompensation for the Impairment or Loss of Items and (c) SIC-23 Pr operty, Plant and EquipmentMajor Inspection or Overhaul Costs.584IFRS Foundation